A Collision Course with $8 Hogs?

I received a short, pointed message from a pork producer in Ohio recently. "Start writing about slowing down expansion," he pleaded. "We've got 35-cent hogs. What will it be next year at this time?"This gentleman is not alone with his concern. Industry leaders and ag economists are lining up to warn pork producers - you may be on a collision course with $8 hogs.Generally, I shy away from predicting

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I received a short, pointed message from a pork producer in Ohio recently. "Start writing about slowing down expansion," he pleaded. "We've got 35-cent hogs. What will it be next year at this time?"

This gentleman is not alone with his concern. Industry leaders and ag economists are lining up to warn pork producers - you may be on a collision course with $8 hogs.

Generally, I shy away from predicting the hog market. It's just not something a monthly magazine can be good at. Daily, even hourly, updates are available from several sources.

It's the long-range trend projections that are causing concerns.

A composite survey of 28 ag economists in October predicts a modest increase in pork production and a decline in prices through the end of 2001.

They expect this year's production to close about even or slightly down from year ago levels. But, that's all about to change next spring. Increases of 2-2.5% more than the previous year are expected the second half of 2001.

If their predictions come to pass, we'll be very close to 1999's record of 19.28 billion lb. of pork.

Economists are focusing on a 5% production increase that could send prices into the single digits.

Where'd they get a 5% bump in production when there appears to be little or no sow herd expansion? Let me count the ways:

1. Average litter size has been edging upward, pretty consistently, at a rate of 1.4 to 1.5% per year.

2. The number of litters farrowed per sow likewise has been creeping upward as producers master early weaning skills, cull sows closer.

One industry leader points out the 1998 sow herd was the youngest in production in history while the 2000 sow herd could well be the oldest.

Agree or disagree, but consider this - logic would say that since 1998, after a $4.2 billion to $4.5 billion equity loss was incurred through the most devastating prices in modern history, producers decided to "make do" with the sows they had. Assuming the scenario fits, the U.S. sow herd has been aging. Their most productive parities are behind them. New, better replacement gilts - even without expansion - means production will climb.

3. Slaughter weights generally increase at a rate of 1.3-1.5 lb./pig/year. The average dressed weight of barrows and gilts closed the first week of November at 193 lb., 4 lb. heavier than the corresponding week in 1999. The same week, Iowa-Southern Minnesota live weights set a new record - 262.9 lb.

The composite of these three production areas - litter size, litters/sow and weight at slaughter - pushes productivity up 5-5.5% on an annual basis. That's about 5.25 million more market hogs, on an equivalent basis, without expansion.

Production this year will top out at 98.5 million to 99 million hogs. If the 5.5% productivity improvement trend holds, we'll be talking about 102 million to 103 million hogs next year at this time. Remember what happened last time we slipped over the 100 million-hog mark?

Reality check No. 1: "Packing capacity is tight and will be getting tighter," observes one economist. "As soon as slaughter exceeds 2 million head per week, the dynamics of supply and demand overwhelm the ability of producers to bargain and hold prices," adds another.

The heavy hog issue has always been a pet peeve of mine. I fully understand the economies and efficiencies packers are capturing with larger carcasses. Likewise, I understand that if a packer pays premiums for leaner, heavier hogs, that's what you'll deliver.

With today's leaner genetics and advances in swine nutrition, the size of hams and loins has simply gotten larger. However, you need to know that there is a growing concern amongst wholesalers, retailers and restaurateurs about the large primal cuts that they receive. Whether it's in the meat case or a center-of-the-plate item in a nice restaurant, most health conscious customers want moderate portion sizes.

Packers will cling to the heavier weights for efficiency reasons, of course. But, I suspect their wholesale and retail customers' messages will eventually get through. If the market prognosticators are right, now would be a good time to open some dialogue and rethink the heavyweight end of the packer premium grids.

An easy, manageable solution is to market hogs at lighter weights. Most pork producers know their hogs are more efficient in the 240-260 lb. range - and they're not so tough on equipment. Knock 30-40 lb. off each market hog next year, and it could put a nice dent in the 2001 pork tonnage.

I most certainly do not want to be an alarmist. But, there are some warning signs out there. Heed them or ignore them, as you wish, but don't say I didn't warn you.